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As discussed in our Energy Forum earlier this year, "Water challenges in the oil and gas industry,"  the procurement and disposal of water are persistent challenges for the budding natural gas industry. Each horizontal well requires millions of gallons of chemically treated water in order to fracture the shale and produce oil and gas. Much of that water flows back to the surface (flowback), along with brine that is produced after fracturing is complete and production commences. All of this flowback and produced brine has to go somewhere, often to a Class II Injection Well. However, the drilling waste disposal landscape is beginning to change as injection wells are more frequently the target of concern, criticism and regulation.

Recycling flowback is a growing economical option for industry players concerned with water consumption and disposal. Recognizing this rising tide of flowback-recycling activity, states have begun to promulgate new regulations relating to recycling practices. For example, Ohio recently passed House Bill 59 (“HB 59”), which paves the way for a formal permitting process for drilling waste recycling facilities in the state.

The changing landscape of wastewater disposal

To a layperson, an injection well may sound like a worrisome concept. But the reality is that it remains the preferred method of wastewater disposal for environmental regulators. As a general matter, it is far safer to dispose of fracking-related liquid, and drinking water aquifers, for that matter, miles beneath the surface than to dispose of it anywhere on the surface. However, injection wells, particularly those in Ohio, have faced a number of criticisms in recent years and remain a major part of the dialogue about fracking in the Marcellus and Utica shale plays.

One criticism is that the sheer volume of water being disposed of through injection wells is unsustainable. Ohio injected 14.2 million barrels of water into injection wells in 2012, a 12 percent increase from 2011. Only 6 million of those barrels came from Ohio drillers; the rest of the water came from out of state. These numbers are staggering as it is, but they become even more startling when one considers that fracking activity in Pennsylvania, West Virginia, and especially Ohio is just beginning. Click here for a recent article on this topic.

Another criticism leveled at injection wells is that they cause seismic instability. Youngstown, Ohio experienced a series of minor earthquakes within an eight-kilometer radius of an active wastewater injection well. The general consensus is that the injection activity, coupled with the fact that the well was located on a geologic fault line, was to blame. Click here for a recent article on this topic.

The advantages of wastewater recycling have always been apparent to drillers. With developing technology, the ability to recycle and reuse water has the potential to be a big cost-saver. These recent criticisms leveled at injection wells only make flowback recycling that much more appealing.

Regulation of water recycling facilities in Ohio and Pennsylvania

As of now, Ohio takes a relatively informal approach to the regulation of drilling waste treatment facilities. Such facilities are currently regulated by the Ohio Department of Natural Resources (ODNR) under its authority to regulate brine storage in general pursuant to O.R.C. § 1509.22. The regulatory process generally involves ODNR examining the specifics of each facility to confirm that it meets best practices. Typical areas of ODNR examination include design, storage capacity and spill containment.

However, this informality will give way to a more regimented permitting process beginning early next year. Starting January 1, 2014, O.R.C. § 1509.22(B)(2)(a) will require facilities that recycle or treat “brine or other waste substances associated with the exploration, development, well stimulation, production operations, or plugging of oil and gas resources," to obtain a permit from ODNR. However, § O.R.C. 1509.227 clarifies that facilities in operation prior to January 1, 2014 do not need to obtain a permit if previously approved under ODNR’s informal review process. This new permitting requirement is part of a larger legislative package related to oil and gas that was included in HB 59, signed into law earlier this summer.

HB 59 requires ODNR to promulgate regulations that set forth the process for obtaining a permit and the requirements for maintaining a recycling facility. The process of creating these regulations is just beginning; there is no certainty about the scope of the end product. That said, Pennsylvania’s current regulatory regime may be a good indicator of the direction of Ohio reforms.

Pennsylvania has a formal permitting process for drilling waste treatment facilities whereby operators must obtain a permit through one of two avenues:

  1. Seeking coverage under the General Permit WMGR123
  2. Moving through the Oil & Gas Program’s approval process

These alternatives are not left to the operator’s discretion. The General Permit WMGR123 applies to drilling waste treatment facilities that are not associated with a specific drilling site, while the Oil & Gas Program is limited to drilling waste treatment facilities that are located on a drill site and only treat drilling waste from that site. General Permit WMGR123 sets forth specific requirements relating to registration, operating conditions, reporting, and recordkeeping; operators who register for coverage must meet these requirements under the permit. Ohio will likely consider these requirements in crafting its own regulations. Whether Ohio regulators decide either to loosen or double down on some of Pennsylvania’s more onerous permitting requirements remains to be seen.

Conclusion

With the regulatory requirements of the permitting process yet to be determined, it may be worthwhile for those interested and capable of constructing a drilling waste recycling facility to seek approval from ODNR prior to January 1, 2014. As mentioned above, HB 59 permits those facilities approved by ODNR prior to January 1, 2014 to remain in operation without having to go through the new permitting process.

For more information, please contact:

Michael W. Wise
216.430.2034
mwise@mcdonaldhopkins.com

Jeffrey R. Huntsberger
216-348-5405
jhuntsberger@mcdonaldhopkins.com

Theodore J. Esborn
216-348-5735
tesborn@mcdonaldhopkins.com

Daniel J. Smith
216-430-2046
dsmith@mcdonaldhopkins.com

Energy Practice Group

Many of the attorneys in our Energy Group have spent more than a decade serving public utilities and/or oil and gas clients and therefore offer a unique perspective in understanding the legal issues currently presented in the energy industry. Our clients include public utilities, renewable energy companies, energy developers, the oil and gas industry, industrial companies and suppliers. Our Energy Practice has a multi-disciplinary approach to counseling our clients and covers litigation, governmental affairs, real estate law, environmental law, capital markets and other practice areas.

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